Question

Financial Statements of a Manufacturing Firm The following events took place for Rushmore Biking Inc. during February, the first month of operations as a producer of road bikes: • Purchased $432,900 of materials. • Used $372,300 of direct materials in production. • Incurred $320,000 of direct labor wages. • Applied factory overhead at a rate of 80% of direct labor cost. • Transferred $910,400 of work in process to finished goods. • Sold goods with a cost of $865,800. • Revenues earned by selling bikes, $1,549,800. • Incurred $372,300 of selling expenses. • Incurred $138,500 of administrative expenses. a. Prepare the income statement for Rushmore Biking Inc. for the month ending February 28. Assume that Rushmore Biking Inc. uses the perpetual inventory method. Rushmore Biking Inc. Income Statement For the Month Ended February 28 Revenues $ Cost of goods sold Gross profit $ Selling and administrative expenses: Selling expenses $ Administrative expenses Total selling and administrative expenses Operating income $ Feedback a. Both product and period costs must be reported on the income statement and are necessary to measure income. b. Determine the inventory balances on February 28, the end of the first month of operations. Materials inventory, February 28 $ Work in process inventory, February 28 $ Finished goods inventory, February 28 $

Answer 1

Rushmore Biking Inc Income Statement For the Month Ended February 28
Revenues		$1,549,800
Cost of goods sold		($865,800)
Gross profit		$684,000
Selling and administrative expenses:
Selling expenses	$372,300
Administrative expenses	$138,500
Total selling and administrative expenses		($510,800)
Operating income		$173,200
b. Determination of the inventory balances on February 28, the end of the first month of operations.
Materials inventory                        = Materials purchased (-)Direct materials in production                        = $432,900 (-) $372,300                        =   $60,600
Work in process inventory                  = Direct materials in production + Direct labor wages+Factory overhead applied                                                                                              (-) Transferred to finished goods                =    $372,300 + $320,000 + (80 % x $320,000 ) - $910,400                = $37,900
Finished goods inventory   = Transferred to finished goods( -) Cost of goods sold                                                                      = $910,400 (-) $865,800                                                                      = $44,600